While the employer mandate provision of the Affordable Care Act may be the most notable requirement in a small business owner’s mind, they need to pay attention in the now, as new tax filing requirements and penalties for health insurance may impact business capital.
As individuals gear up for April taxes, advisors are raising awareness of increased monetary penalties for having no health insurance. This is particularly important to small business owners with fewer than 50 employees, as they will not be impacted by the employer mandate, but may still see consequences of inaccurate reporting.
What do you need to know?
As enforcement of requiring all consumers to have health coverage, the ACA calls for penalties to be imposed on those who would rather pay than play. However, of note is the doubling of these penalties from 2014 to 2015.
According to Healthcare.gov, in 2014 individuals with no insurance pay the higher of two scenarios: 1 percent of annual household income above the federal tax filing threshold or $95 per person ($47.50 per child under 18) in a household. In 2015, those penalties are now 2 percent of annual household income or $325 per person and $162.50 per child. Those penalties are also scheduled to increase each year, meaning in 2016, those with no coverage would pay 2.5 percent of annual income or $695 per person.
What must be done
What small business owners must first grasp is proper reporting methods for health coverage on taxes. Getting it right for the 2014 reporting season will be crucial to be prepared as a business and as a consumer in 2015 and beyond.
Small Biz Trends lays out the many filing scenarios dictated by when coverage was obtained: it depends on if you’ve had insurance for the entire year, received insurance through the marketplaces, had insurance for maybe only half the year, were exempt, or chose not to have healthcare at all. For example, 1 1/2 of the yearly penalty is applied to each month a person does not have insurance.
There is a space on Form 1040, Form 1040A and Form 1040EZ for such reporting.
It may also be up to the business owner to alert employees to the elevated penalties for no insurance, particularly if they are not required to extend insurance or are so small as to not be able to. Aside from their own problems, owners may run into additional problems if employees are in the dark and are affected by the penalties.
Further down the road
Louisville Business First spoke to Elizabeth Dieruf, a local tax specialist, who said it behooves businesses to pay attention to reporting mandates now so they establish good recordkeeping practices.
“A form that includes [what businesses provide in health coverage] will need to be filed for each employee,” the source quoted Dieruf as saying. “That means business owners will need to be sure to keep good records of this information during the course of 2015 so that it can be filed with next year’s return.”
Owners who may be impacted by the new filing requirements or need to pay heightened penalties can contact an alternative business loan provider for help with cash flow.